In the latest monthly reading, the UK inflation rate sits at 7.9%. The figure gets updated every month, with it forecasted to fall through to the end of the year.
Naturally, inflation erodes the value of my money. So by investing in an asset (such as a dividend stock) that can offset this impact, it can make a lot of sense. Here are two ideas.
Potential for high dividends
As a note of caution, I appreciate that the dividend yield of a stock changes everyday. Therefore, even though the stocks mentioned have a current yield above 7.9%, this is subject to change.
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The first one is Energean (LSE:ENOG). The current dividend yield is 8.2%, with the share price down 11% over the past year.
Energean is focused on hydrocarbon exploration and production. The business is doing well, with revenue last year jumping 48% versus 2021. Thanks to a 118% increase in net profit, it has been able to continue regular quarterly dividends.
What excites me is the dividend forecast. The business is looking to increase the payments in line with profits over the coming couple of years. From my calculations, this should push the yield easily above 10%. Granted, it depends on what happens to the share price over this period as well.
As a risk, this sector is known to be volatile. All it takes is for some projects in the pipeline to become unviable and the bubble of optimism can burst.
Big projects, big income
The second share is the Sequoia Economic Infrastructure Income Fund (LSE:SEQI). Listed on the FTSE 250, the current yield is 8.24%. The stock’s dropped 9% over the past year.
As the name suggests, the fund primarily invests in large-scale infrastructure projects. This includes areas such as transportation, power, and utilities. It currently has 66 private debt investments.
Given the income it receives from the money lent, along with some capital appreciation if the projects go well, I feel it’s a strong choice for investors to consider. It has a good track record of paying out quarterly dividends over the past few years.
The share price also trades at a 12% discount to the net asset value (NAV). The NAV reflects the value of all the investments held. Therefore, in the long run, this discount should, in theory, move back closer to zero.
One risk is that the average maturity of a deal is 5.2 years. This means the fund has money tied up for quite a while. If it suddenly needs to generate liquidity, this could prove to be a problem.
I fully accept that using the income from these stocks isn’t a perfect way to beat inflation. Yet in terms of a strategy to help minimise the negative impact it offers, I believe it’s one of the most effective ways in the market right now.
